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Note to investors: Freaking out is never a good option

Traders on the floor of the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images

This wasn't what you expected, right?

If you're an investor, you're probably at least breathing a sigh of relief that you skirted the Trumpageddon stock market doomsday scenario that seemed likely, based on the S&P 500 futures drop of 800 points on Tuesday night. Stocks have been in full-on rally mode since Trump's election.

As an investment professional, I'm glad I was able to leave my emotions out of this. I have a strategy that I trust, developed over my 26-year career, and I will keep it simple for you. Here is the first thing I am telling clients — and it's the same thing I would tell them on any market-shock day:

A strategy that shifts based on public opinion day to day, hour to hour, is not a strategy. It's more like freaking out.

"A strategy that shifts based on public opinion day to day, hour to hour, is not a strategy. It's more like freaking out."

Most retail investors are probably lucky they don't trade in the middle of the night.

But did you dump your long-term investment holdings when you saw the S&P 500 down nine days in a row?

Did you buy back what you sold because all of a sudden you thought Hillary would win the election?

Consider this: In the lead-up to Election Day, the market had its biggest two-day gain since Brexit, after its longest consecutive-days losing streak since 1980. Now the stock market is on track to have its best week of 2016!

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I can tell you one thing for certain: It takes years to learn how to react calmly in the face of calamity. As a financial advisor, I earn my living based on how well I prepare for calamitous events. You don't need to be one of the world's greatest market timers — I know of no one who claims that mantle.

A strategy that adheres to the four simplest aspects of investing is the place I start and end a conversation with every single person I advise.

1. Know your time horizon — at all times.

A friend of mine needs his 529 college savings plan funds for his daughter's college education in 18 months. We spoke about volatility and that when the time horizon is short, he won't have enough time to recover from potentially tens of thousands of dollars of losses. We went super-careful conservative ahead of the election from what was already a fairly conservative investment mix.

2. Time in the market is what counts, not market timing.

Investors are so brave. Until they see their account get slammed, that is. I explain risk tolerance like a "faith meter."

You may believe that long-term investing is a good thing. But do you have faith that tough times won't last? I disagree with the sentiment that more risk means more return, because sometimes too much risk means potential for permanent losses.

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If you are prone to getting upset when the stock market declines a lot, then I'd rather see you invest more conservatively. Take this to heart: Time in the market is the key to long-term investment success, not timing the market.

I think it is more important for you to have an investment portfolio that you can stick with, not one that's exciting.

3. Money is not the goal, but the goal is what will keep you focused.

Money is important. Duh! But if you need to accumulate wealth to pay for your goals in the future, that's really the important thing. Your goal, if it is important, keeps you focused, encouraged. Doing things like updating your beneficiary designations for your retirement accounts, creating a will, having adequate health, disability and life insurance are also important steps you need to focus on. In a sense, taking care of your health is the most important financial step you can take, especially as we are living longer and have greater health expenses we will need to cover.

4. Diversification does not go out of style.

Diversification didn't go out of style just because the market was volatile. It is not a guarantee of positive returns in a generally down market. But think of it like this: Eventually, many assets will show positive returns, but they'll just do that at different times along the way.

You probably know all of these things, but sometimes we need a little reminder that the fundamentals still work. So the next time investors around you go bonkers, remind yourself of these four things to help you be the calm investors you know you could, and should, be.

By Mitch Goldberg, president of investing firm ClientFirst Strategy

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